Gateway vs Dell Financial Analysis

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Like most of the data that we have reviewed so far, the cash flow ratios for Dell and Gateway tell significantly different stories. The most glaring example is that most of Gateway's cash flow ratios for the past five years are negative. This is a direct result of their Net Cash flow from Operating Activities being negative for four of the past five years. The driving force for this negative cash flow from operations is that Gateway's Net Income, which is the baseline for cash flow before other factors are taken into consideration, was negative each year from 2001 to 2004 and was only marginally positive (~$6MM) in 2005. Additionally, Funds From/For Other Operating Activities represented significant negative impact to Net Cast flow from Operating Activities in each year except 2005. Gateway has attributed most of the recent losses in Funds From/For Other Operating Activities from the 2004 acquisition of E-machines. The consistent factors of Funds From/For Other Operating Activities that have been negatively impacted are Accounts Receivable, Accrued Liabilities, Accrued Royalties and Other Liabilities. These, along with the negative Net Income, have played a significant role in making the Net Cash flow from Operating Activities a negative number. The ratios of largest concern when looking at Gateway's Cash Flow statements are the Cash Flow from Operations to Current Liabilities Ratio and Quality of Earnings. Analysts review the Cash Flow from Operations to Current Liabilities Ratio for any company to evaluate the short-term risk of a company and measure its ability to cover its current liabilities without having to borrow or engage in financing. Cournelius Casey and Norman Bartczk in "Using Operating Cash Flow Data to Predict Financial Distress" noted that a healthy firm has a ratio around 40%. In the case of Gateway, the Cash Flow from Operations to Current Liabilities Ratios for the last five years are -2.04%, -40.93%, 7.50%, -2.37%, and -19.47%...
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